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May 2, 2017  -  Stay Connected!

QUESTION:  Our brokerage had a meeting about the importance of using the Evidence of Funds addendum on all transactions, however there is some verbiage on there that is misleading and we had one broker on the other side of a transaction flat out refused to have her buyers complete one.
Under paragraph 2 for Non Contingent funds it states “Buyer is relying on Non Contingent Funds for payment of the Purchase Price.” People are taking this too literally and interpreting it as the entire purchase price even though it states further down “unless buyer discloses other sources of funds for the payment of the Purchase Price.” Is the broker's interpretation a reasonable basis for rejecting use of the form?

ANSWER: Absolutely not. Brokers engage in the permitted practice of law, according to the Supreme Court decision in Cultum v. Heritage House, when they fill in the blanks on forms AND when they select which forms to use. This means that if there are statewide forms available for a broker's use, and the form should be used in a given situation, broker is practicing law if broker chooses NOT to include the form. Broker's decision will be compared to the standard of care expected of an attorney.
Consider now, why it is important to use Form 22EF. Form 21, paragraph a, says that buyer is not relying on a contingent source of funds unless disclosed to seller in the PSA. If a buyer includes a Form 22A, Form 22B or Form 22Q, buyer is disclosing a contingent source of funds.
But, if buyer is relying on an additional contingent source of funds, which many, many buyers are, then buyer is either misrepresenting buyer's financial condition or fraudulently inducing seller to enter the PSA by failing to disclose buyer's reliance on the contingent source of funds. It is important to understand the definition of "contingent funds". Contingent funds are any funds that are NOT in a US bank account in buyer's name. That means that if buyer is relying on funds in an IRA, a 401, the stock market, a gift, a line of credit, the sale of personal property, etc., buyer is relying on a contingent source of funds.
If a broker refuses to include a statewide form designed and intended to prevent her client from committing misrepresentation or fraud because broker misunderstands or misinterprets the form, then broker engages incompetently in the practice of law. Form 22EF serves a fundamental and unavoidable function in many transactions. It is not acceptable for any broker to have a personal rule refusing use of the form in appropriate circumstances.
Moreover, and equally as important, buyer's broker has no authority to unilaterally refuse the use of any form that comes to buyer in the form of a counteroffer. Buyer broker's obligation was to present the offer to buyer in a timely manner and let buyer choose how to proceed. A broker should never, as this question indicates, reject a seller counteroffer because of the inclusion of any term. The buyer is the only person who can reject a seller counteroffer.


The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to . Please tell us your NRDS number when you e-mail the Hotline with your question.

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Call for Action Launched May 1st
If you haven't done so already, take action now! Washington REALTORS® have launched a Call to Action on SB 5239, which addresses the impacts of the Supreme Court’s Hirst water rights decision, and SB 5254, which improves the Growth Management Act’s Buildable Lands Review process and provides funding for low-income and homeless housing programs. [Take action now...]

In-depth update and clarification on the Hirst Decision 
Washington REALTORS® Public Policy Director Bille Clark provides an insightful update and much needed clarification on the Hirst Decision and WR's support for SB5239. [Watch the Video...]

Washington Real Estate Commission Opportunity
The Washington REALTORS® are encouraging interested members to submit a letter of interest, resume and a completed application to serve on the Washington Real Estate Commission. Applications can be obtained by accessing Governor Inslee’s web page at, and clicking on the Boards and Commissions link. [Read more...]

3DR Solo Drone Quadcopter Giveaway
The Tech Helpline is holding a giveaway with an opportunity to win a 3DR Solo Drone Quadcopter. Like their Facebook page and/or stop by their booth (#818) at the REALTORS Legislative Meetings & Trade Expo in DC! [Read more...]

NAR Committee Application Deadline is May 23, 2017
Are you interested in getting involved at NAR? Now is the time! Find an area to serve that you are passionate about and apply today. Follow the link to update your member profile and apply to serve on a committee. [Read more...]

Defensible Business Strategy for Uncertain Times
(Source: RE Magazine - Sam DeBord) The speed with which our world is changing seems to be quickening. Whether technological, political, or economic, the forces that surround the way we live our lives and run our businesses are shifting swiftly. This environment can be exciting and frightening when trying to run a stable business with a predictable income stream. As real estate professionals, we know there is no such thing as a “normal” year or a “steady” revenue model. But building in some insurance can reduce uncertainty. [Read more...]

Taking the Online Offline
(Source: RE Magazine - Katie Lance) As much as I love social media and technology—there is nothing like meeting someone face-to-face. Social media will never replace an in-person meeting at a client’s home, a phone call or a handwritten note. But, when done right—social media can enhance and make the offline experience so much richer and more meaningful. [Read more...]

Primary Mortgage Rates Survey
(updated every Thursday)

Date Class Location CE  
17-May Into the Breach Dalles, OR 4 More info...
17-May CORE Dalles, OR 3 More info...
22-May Statewide Forms - Full Day Vancouver 7.5 More info...
24-May 2017 Legal Symposium Seattle 7.5 More info...
21-JuneAgency Law 3.5Olympia3.5More info...
21-June Best of the Legal HotlineOlympia4More info...

QUESTION from 5/9/2016 - It is being taught that buyer brokers should always have buyers deposit the earnest money directly into escrow after mutual acceptance. Whether buyer deposits a check directly with escrow or wires funds is not important. What is important is that brokers should do away with handling earnest money checks. Do you agree that this is the best approach for getting earnest money deposited?

ANSWER - No. There is no one-size-fits-all approach to getting earnest money deposited. Having buyer deposit funds directly into escrow may be the best approach for some buyers in some transactions but it is absolutely not the best practice for all brokers and all buyers. Likewise, it is not the best practice from a seller's perspective.
First, it is important to understand the basic operation of Form 21, paragraph b, the statewide form provision that controls the deposit of EM. The provision requires buyer to deliver EM within two days following mutual acceptance. Buyer must deliver within two days following mutual acceptance regardless of whether buyer is delivering to buyer's broker or to escrow. Buyer is not given any extra time because buyer is delivering directly to escrow. Buyer's delivery of the EM is due not later than two days following mutual acceptance based on the boiler plate language of the purchase agreement.
If buyer delivers EM to buyer's broker, buyer's broker must then deliver the EM to the agreed holder of the EM within three days following receipt of the EM or within three days following mutual acceptance, whichever is later. For example, if buyer gives broker a check for the EM on Monday, when buyer writes an offer, but the offer is not accepted until Thursday, then buyer's EM check must be delivered by buyer's broker to the agreed holder of the EM not later than three business days later, which is the following Tuesday (assuming a normal week with no holidays).
There is another piece of background knowledge that is essential to answering this question. DOL mandates, without exception or excuse, that every transaction file include proof that buyer's EM was deposited timely and if not, that seller was immediately put on notice of buyer's failure. DOL audits both buyer and listing broker transaction files equally with respect to this issue. Using an example where mutual acceptance is reached on Thursday, DOL will audit both listing and buyer broker transaction files to confirm that: 1) if buyer deposited EM directly, the deposit was received by the agreed holder of the funds not later than Monday; or 2) if EM was delivered to buyer's broker, that the delivery to buyer's broker was made not later than the following Monday (there must be a receipt or other proof of buyer's timely delivery in both listing and selling transaction files) AND that EM was then deposited within three days following either buyer's delivery to buyer's broker or mutual acceptance, whichever came later (again, there must be proof of the timely delivery to escrow or deposit in the firm trust account, whichever is required by the terms of the agreement).
If there is no proof of timely delivery/deposit in the listing and selling files, then DOL expects to see proof that seller/listing broker was put on notice of buyer's failure not later than the day following the date on which deposit was due. Again, DOL expects both listing and selling firms to confirm timely delivery/deposit and will hold both brokers and firms responsible if there is a failure of deposit and seller is not notified of the failure.
This issue is one of the often cited failures leading to disciplinary action by the Department of Licensing. Brokers either do not have the necessary receipts or other proof in transaction files and/or brokers do not have proof that in the event of buyer's failure to make timely deposit, seller was notified of buyer's failure. DOL has jurisdiction over this issue because brokers are required, pursuant to RCW 18.86.030 (the Agency Law) to disclose "material facts". DOL is authorized, by statute, to enforce RCW 18.86.030 and DOL interprets "material fact" to include a buyer's failure to make timely EM deposit. Accordingly, DOL requires strict compliance with the documentation protocols described above and disclosure to seller of any failure by buyer to make timely deposit.
With all of this background information, it is time to answer the question. Again, there is no answer to this question that is the correct answer in every transaction. But, considering the heavy burden placed on brokers to document timely deposit of buyer's EM and to take immediate action if the deposit is not made timely, doesn't it seem like the greater control broker has over the logistics of buyer's deposit, the better? Doesn't broker have greater control over timely collecting buyer's EM and timely depositing buyer's EM if buyer broker collects an EM check at the time buyer signs buyer's offer? The answer is yes. Broker has the greatest control if broker collects buyer's EM at the time buyer signs an offer. To the extent that is possible, that should be buyer broker's goal. In cases where buyer cannot or will not give buyer broker a check for the EM at the time buyer signs the offer, then buyer has the freedom to make deposit directly to the holder of the EM within two days following mutual acceptance. Both brokers must then calendar and follow up on the duty to confirm buyer's timely deposit and notify seller/listing broker of any failure.
Assume buyer broker does collect buyer's EM at the time buyer signs buyer's offer, buyer broker has a separate duty to safeguard buyer's funds. DOL requires that buyer's broker deliver the EM within three days of receipt. If buyer and seller reach mutual acceptance within those three days so that broker can simply deliver to the holder of the funds, so be it. But, if buyer and seller are still negotiating three days after buyer wrote the EM check, then buyer's broker must deliver the EM check to broker's managing broker for safe keeping. Buyer broker and managing broker will then have an obligation to insure that the check is timely deposited following mutual acceptance.
It is likely because of this extra step of safe handling that instruction is given for brokers to avoid handling EM. The effort to avoid that step of safe handling, however, necessarily results in a situation where both brokers and the seller are left to trust a buyer that buyer will make timely deposit. Buyer's "trustworthiness" may not even be the real issue. Rather, buyer's memory, attention to detail, ability to handle the logistics of the deposit and other more mundane characteristics may rule the day. Moreover, relying on buyer to make timely deposit results in a burden on both brokers to confirm timely deposit. But, if the EM check is given to buyer's broker, it is expected that buyer's broker will automatically provide proof to listing broker of broker's timely receipt and broker's timely delivery of the EM.
Again, there is not a one-size-fits-all answer to this question. It would be a mistake to believe that a buyer's broker should always avoid collecting an EM check at the time buyer makes an offer. To the contrary, when buyer's broker can collect the EM check at the time buyer writes the offer, buyer's broker has the greatest control over the outcome for deposit and both brokers and seller enjoy the safest measure of protection with respect to the required deposit and proofs.
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The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to Please tell us your NRDS number when e-mail the Hotline with your question.